NONPARAMETRIC FRONTIER MODELS FOR ASSESSING THE MARKET AND COST EFFICIENCY OF LARGE-SCALE BANK BRANCH NETWORKS

In this paper we propose models for assessing the efficiency in large networks of bank branches. We distinguish bank branch efficiency into marker and cost components suitably modified to capture different tier s of bank management The paper proposes a methodology which includes t he use of multivariate analysis in order to ensure the homogeneity of the branches assessed and then data envelopment analysis for assessing efficiency. The methodology is applied on a sample of 580 branches of a commercial bank in the United Kingdom. The results obtained reinfor ced previous claims regarding the presence of high technical inefficie ncies and economies/diseconomies of scale at the branch level from a p roduction and cost point of view. Furthermore, the decision to pre-clu ster the network of branches into homogenous groups has had profound i mplications on the magnitude of the assessed efficiencies.